September 23, 2015
The United States is without a doubt one of the most technologically evolved countries in the world. And yet, there are yet some areas in tech where the rest of the world outperforms America. The way credit card transactions work is a good example of this.
The US is the last major market still using the traditional swipe-and-sign system for credit card transactions, which is a problem considering that almost half of the world’s credit card frauds happens in American territory, with huge situations like the recent Target credit card data theft.
Swipe-and-sign is outdated and is not safe, especially when compared with the chip-and-PIN systems used nowadays in most countries outside the US. However, and starting October 1st, the much-discussed Payment Networks’ Liability Shift associated with EuroPay, MasterCard, and Visa (EMV) is due to take effect in the United States, which will change the way these transactions occur.
This shift will increase the overall security of credit card transactions, which will result in fewer frauds and losses caused by them. Businesses will need to adapt, but payment processing companies are already on the way to get ready. While the cost of this replacement may cost more than $8.5 billion, this shift is worth doing, as the annual losses in frauds reach $10 billion.
Another important aspect of this change in the system is the “liability shift”, where the way to determine who has the liability in case of fraud will also be different. After October 1st, the liability will lie with the party having the lesser technology. This means that, for example, if a merchant is still using the swipe-and-sign system and the client has a chip card, that merchant will be liable for any fraud. This works the other way around, as well: if the merchant has a new terminal but the bank has not issued the client a chip and pin card, the bank will be held responsible in the case of fraud.
Companies that change to this newer system now are also making steps toward the future, as new terminals start to be compatible with newer and more practical payment systems, like mobile or contactless payments.
Has your company moved to a chip-and-PIN system? Share in the comments.
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